Executive compensation is designed to create incentives for CEOs to act in the best interest of shareholders. Short-term (bonus) and equity-based incentives induce risk taking behaviors of the CEO that could further change a firm’s risk exposure. This article examines the linkage between compensation components and the impacts on a firm’s credit risk using data from the U.S. and Germany. In the...

In a basic economic system, each participant receives a (financial) reward according to his own contribution to the system. In this work, we study an alternative approach – Incentive Networks – in which a participant’s reward depends not only on his own contribution; but also in part on the contributions made by his social contacts or friends. We show that the key parameter effecting the effici...

This study examines whether the lure of injury compensation prompts whiplash claimants to overstate their symptoms. Claim settlement is the intervention of interest, as it represents the point at which there is no further incentive to exaggerate symptoms, and neck pain at 24 months is the outcome of interest. Longitudinal data on neck pain scores and timing of claim settlement were regressed, c...

Innovation is one of the primary approaches by which companies address progressively severe social, environmental, and market pressures that they face, it a crucial route for to maintain sustainable development. Venture capital (VC) plays significant role in promoting enterprise innovation, especially breakthrough innovation. can increase executive compensation corporate Previous studies have a...

We model the determination of management compensation through the strategic interaction among outside shareholders, managers, and corporate boards. The board sets both regular incentive compensation and discretionary special compensation unrelated to performance. We show that shareholder value maximising compensation plans may feature incentive compensation that is not monotone in performance a...

ExEcutivE compEnsation has suddEnly bEcomE a high-profile topic about which almost everyone has an opinion. Many shareholders, workers, and politicians believe that the entire system is broken and requires a substantial overhaul. The purpose of this piece is to take a hard look at the facts and assess whether the situation is as bad as some people fear. It also proposes the “Incentive Account” ...

Our review of the evidence found that the notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. Moreover, higher pay fails to promote better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the...

We compare, through a laboratory experiment using salient financial incentives, misrepresentations of performance under target-based compensation with those under both a linear piece-rate and a tournament-based bonus system. An anagram game was employed as the experimental task. Results show that productivity was similar and statistically indistinguishable under the three schemes. In contrast, ...

Standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced. This paper studies the design of self-enforced relational contracts. I show that optimal contracts often can take a simple stationary form, but that self-enforcement restricts promised compensation and affects incentive provision. With hidden informa...